Tax Planning Opportunities abound and the following list is not intended to be all inclusive, but simply touches on some of the major opportunities we see on a daily basisQuick Links |  | |
David F. Andrews B Comm CFP CLU TEP
Income Splitting
Income splitting allows couples to shift taxable income from the original earner to a lower income spouse, providing a tax saving. Traditional vehicle such as Spousal RRSP Plans heve been very popular. Starting in the tax year, new rules permit couples to file an election on their income tax to split pension income when they meet specific criteria.
Canada Pension may be split, but that couples must apply direclty to CPP for this type of splitting.
Income Planning
With the reduction on the number of individuals enrolled in Defined Benefit Pension Plans, individuals must take responsibility for planning their own investment (and income) returns. This means better consumer education. From the standpoint of taxation, this means understanding the difference beween taxation of interest, dividend, and capital gains and the impact on your personal tax returns. For non-registered accounts it includes options to deduct fees on investments, defer taxation through specific investment choices, utilize tax loss selling strategies to offset current gains. Your advisor can help with all these points.
Estate Planning
Unfortunately today, we are seeing such an emphasis on avoiding probate fees in estates, that many opportunities that could benefit the family are being missed. Estate planning is the process of determining how you want the fruits of your labor utilized or distributed when you no longer require your wordly goods. Many tools are available to achieve these goals including wills, trusts, life insurance, and tax related strategies.
Will Planning
Will Planning is the primary focus of many estate plans. Simpler client situations permit the use of simple instructions and a "standard" response from people discussing their will is "everything goes to my spouse". Your will is your last opportunity to make your specific wishes be known. The benefits of testimentary trusts are often overlooked and may be applicable. In a nut-shell, a testimentary trust has it's own set of graded taxes on income. In some case that can in effectprovide an opportunity to double the income taxed at the lowest rates. Spousal trusts can insure that assets used by the surving spouse wil eventually find their way into childrens's hands and not get lost in a subsequent remarriage. Discussions with your planner can identify if you should seek legal and tax advice for your personal situation.
Charitable Gifting
We have a tendency to think of charitable gifting strictly in terms of immediate donations. With careful planning, you can direct funds to charities through your estate, reducing personal taxes and possible increasing your estate values. You may, for example, make a gift of an item that contains "deferred taxable income" (normally resulting in a tax bill) and receive a tax credit the full amount, resulting in a tax benefit to the estate. This particluar example also works for immediate donations.
Business Succession Planning
Business Succession Planning refers to the passing of the business to someone else, most commonly another family member. Tax planning opportunties abound in this area with the application of the personal capital gains exemption and in some cases the potential to pass some tax liabilities to the persona receiving the business for payment at some future date. Future dollars are woth less than todays dollars, so the result is a "savings"
Shareholder Agreements
From a tax planing standpoint, shareholder's agreements typically contain a "buy-sell" clause that identifies and helps secure business values for heirs and living vendors. One typ of clause that may be used is referred to as a "hybrid buy-sell" The net effect of this is that it provides an opportunity to direct tax liability on the sale from the seller to the purchaser.
